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CHALLENGES FOR REGIONAL DEVELOPMENT BY DALBIR SINGH. INTRODUCTION India - Federal Democratic Republic – 1.2 billion people, 28 states & 7 centrally administered territories.

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  • India - Federal Democratic Republic – 1.2 billion people, 28 states & 7 centrally administered territories.

  • Diversity – 4635 communities / sub communities , 2100 languages and dialects , 12 ethnic and several religious groups fragmented into large number of castes and 60 socio – cultural sub regions,

  • 7 Geographical Zones with 5200 towns, 7 mega cities, 53 metropolitan cities and 6,50,000 villages covering 3.28 million sq kms.

  • Fiscal policy in India evolved in Quasi-Federal System to meet requirements of centralized planning in Mixed Economy Framework as a result of centripetal bias at the time of independence.

  • With radical economic liberalization and reforms post 1991, intergovernmental policies and institutions reoriented to meet new challenges of competitive market economy.


  • Asymmetrical federalism to accommodate diverse, social, religious, linguistic and ethnic groups besides protection of tribals and minorities.

  • Separation of powers between Legislative, Executive and Judicial arms at both Federal and State Levels.

  • Central Finance Commission appointed every 5 years to review finances of Centre and States and recommend devolution of taxes and grant-in-aid.

  • Planning Commission allocates resources according to envisaged priorities. It also gives assistance to States based on formula given by National Development Council (NDC)

  • NDC which is headed by the Prime Minister meets the elected heads of the Sub-National Govts. periodically alongwith the Planning Commission’s Dy. Chairperson to review the States’ performance and formulate the inter-governmental policies.


    • Nineties-Emergence of liberalization and globalization led to greater fiscal decentralization

  • End of single party rule era , emergence of coalition of parties, rise of regionalism and sub-regionalism

  • Indian Federation moved from 2 tier to 3 tier in 1992 with 73rd and 74th Constitutional Amendments

  • Statutory recognition to rural and urban local self governments. 3.2 million Representatives elected every five years to constitute 2,50,000 local governments at District, Block and Village levels.

  • The rural and Urban Local Bodies empowered in respect of 29 and 18 activities respectively as per Article 243G of the Constitution. Urban Local Bodies have municipalities and Corporations under them.

  • States share revenue and give grant to local Governments and empower them to collect levy of certain taxes.

  • Tax and Expenditure Assignment

    • For Macroeconomic stability, international relations and activities having scale economics assignment exclusively for the Federal Govt. or carried concurrently with the States.

    • Functions State Jurisdiction assigned to States but the Federal Govt. has residual tax powers.

    • For revenue productivity, State levies are Sales Tax, Stamp Duty cum registration charges, excise on alchol and Motor vehicle tax.

    • Tax on agriculture income is state’s domain whereas power to tax Non-Agriculture income is with Federal Govt.

    • The revenue capacities of States to meet their expenditure needs are invariably adequate. The Federal Govt. shares the revenue with the State Govts to meet their targets.

    • Criteria for tax Devolution includes indicators: Population, Per capita Income (SDP), Area, Index of Infrastructure, tax efforts and fiscal discipline.

    • Additional provisions are made for backward regions and special category states of North eastern India.

    • Fiscal Federalism though progressive needs corrections for vertical and horizontal fiscal gaps in States.



    • Agriculture, including agricultural extension.

    • Land improvement, implementation of land reforms, land consolidation and soil conservation.

    • Minor Irrigation, water management and watershed development.

    • Animal husbandry, dairying and poultry.

    • Fisheries

    • Social forestry and farm forestry.

    • Minor Forest Produce.

    • Small Scale Industries, including food processing industries

    • Khadi, village and cottage industries

    • Rural Housing

    • Drinking Water.

    • Fuel and Fodder.

    • Roads, culverts, bridges, ferries,

    • waterways and other means of communication

    • Rural Electrification, including distribution of electricity

    • Non-conventional Energy sources

    • Poverty alleviation programme.

    • Education, including primary and secondary schools.

    • Technical training and vocational education.

    • Adult and non formal education.

    • Libraries

    • Cultural activities

    • Markets and fairs

    • Health and sanitation, including hospitals, primary health centres and dispensaries.

    • Family welfare

    • Women and child development

    • Social welfare, including welfare of the handicapped and mentally retarded.

    • Welfare of the weaker sections, and in particulars of the Scheduled Castes and the Scheduled Tribes.

    • Public distribution system

    • Maintenance of community assets


    • Objective of planning was to remove regional backwardness, meet regional aspirations and demands, make optimum and judicious use of regional resources

    • It aimed to solve regional problems and involve local people in plan formulation & implementation and for conservation of Environment & Cultural Heritage of a particular region.

    • 1st and 2nd Five Year Plan(1950’s ), special attention given to develop backward areas. Number of new Industrial Centres located there to boost regional economy and create employment opportunities for local people.

    • 3rd Plan, it was decided to accelerate manufacturing and agriculture to achieve goal of balanced development-not considerable progress achieved.

    • 4th Plan: watershed in planning – spelt out distinct regional policies to reach social and economic goals. Some attempts to decentralize planning process at Sub-National and Sub-State Levels.


    • Compulsion which stimulated regional thinking was widening inter-regional disparities. Between 1960-70, difference in per capita SDP shifted from 1.9:1 to 2.6:1.

    • 5th Plan: Target areas and groups covered tribals, small and marginal farmers .

    • 6th Plan: Technology upgradation, research focus on crops, introduction of high yield varieties, enhancement of irrigation facilities, use of Chemical Fertilizers, additional supply of agricultural credit, consolidation of land holdings & land reforms led to green revolution.

    • Average GDP (1950-80): Only 3.6%. Since 1980 accelerated to 5.6% and after reforms in 1990s rose to 6%.

    • Reforms led to structural changes in economy, deregulation of investment, liberalization of trade, capital flows and prices. Between 2004 and 2010, GDP jumped to 8%.


    • Regional equality has been the core objective of national plans but India has witnessed vast regional disparities in the last four decades, because of wide variation in economic performances of States.

    • Per capita Income in all the states has increased in the last 4 decades. Disparities in income higher within rural areas across states compared to urban counterparts. Maybe reflection of converging trend in terms of opportunities in cities and towns.

    • Data shows definite divergence in regional state products. SDP has converged for the special category states.

    • Speed of convergence has been faster during the period 1992-2008 when economy embarked on massive structural reforms.

    • While share of agriculture in SDP declined in all States but it did not result in decline in income gap across States.

    • Observed converging trend of various Human Development indices across States. Gaps between States declined in terms of literacy, enrolment ration and life expectancy at birth.

    • There is a healthy competition between the States endowed with better location, infrastructure and governance to attract investment. Normally, the low income States rarely compete with the highly developed States. Bihar in the recent past has been rare exception largely relying on improved governance and better fiscal management.

    Dimension Indexes and Human Development Index, 2009-10 rural urban disparities (2010)

    Dimension Indexes and Human Development Index, 2009-10

    Trends in CV of PCY (Weighted at 1999-00 Prices) rural urban disparities (2010)

    • CHALLENGES IN REGIONAL DEVELOPMENT rural urban disparities (2010)

    • Globalization and liberalization of economy appear to be co-related with rising spatial inequality.

    • Global integration leads to sharper expression of comparative advantage and regions well placed in terms of location, education, governance and other conducive conditions which tend to surge ahead as global opportunities are accesses while others lag behind.

    • This is a case both for China and India where sharply rising regional disparities have coincided with period of external liberalization.

    • High and rising inequality in general dissipates the impact of growth on poverty reduction. Spatial inequality contributes to overall inequality but it is critical where location aligns with differences between group identities. The deepening North South divide in small country like Ghana became a major concern as North is primarily Islamic while South is Christian dominated. Plural Societies like India can not ignore such sensitivities

    • CHALLENGES IN REGIONAL DEVELOPMENT rural urban disparities (2010)

    • Spatial disparities in India align with other cleavages which threaten the national unity and peace, whether it is the Maoist corridor that matches the corridor of deprivation or whether it is fissiparous tendencies within the States, some of which may have been addressed but others which continue to fester.

    • Location blind policies may be preferable from economic perspective but can be problematic in multi ethnic and multi religious societies like ours. Our strong regional policies lead to redistribution of gains of growth with investment in lagging regions. We have launched ambitious programmes like ‘National Rural Employment Guarantee Scheme’ and ‘Bharat Nirman’ successfully to address the needs of the lagging rural segments.

    • Flushed with growth success for the last two decades, there is an argument from analysts that balanced regional development is a concept of the past and that lagging regions should essentially send the population to fast growing areas. It is our national commitment to reduce overall rising inequalities, alleviate poverty and address larger issues of social inclusion. However, if hypothesis of divergence in regional incomes has stronger ground, some growth may have to be sacrificed to achieve balanced regional growth.

    • REVIVAL OF REGIONAL POLICY rural urban disparities (2010)

    • Since 2002, our policy aim is also to bring poor regions up to a minimum level of social and physical infrastructure through large “flag ship” programmes.

    • These have been launched to provide resources to build capacities of local bodies to plan locally and to provide resources to plug “critical gaps”.

    • The new strategy is built on the premise that once these critical gaps can be filled and minimum infrastructure created, the states will be better equipped to integrate with the markets and take advantage of globalization.

    • The role of the state is seen as facilitator for the creation of a market friendly environment.

    • This strategy is expected to offset the cumulative advantage conferred by the market on the already developed regions

    • India spends nearly USD125 billion annually on about 150 Centrally sponsored schemes conceived by Federal Govt. and implemented by States.

    SCHEMES SPONSORED BY FEDERAL GOVERNMENT rural urban disparities (2010)

    (Allocation : USD 120 BILLION ANNUALLY)

    • REDRESSAL OF REGIONAL IMBALANCES rural urban disparities (2010)


    • Provides financial resources for supplementing existing inflows into 272 districts so as to:

    • Bridge Critical gaps in local infrastructure

    • To strengthen Panchayat and Municipal level governance with more appropriate capacity building to reflect local needs,

    • To provide professional support to local bodies for planning, implementation and monitoring & improve the performance and delivery of critical functions assigned to panchayats.


    • Applicable in 9 States. Gram Sabha is competent to safeguard and preserve traditions and customs of people, their cultural identity, community resources and customarymode of dispute resolution.

    • Provides for 50% reservation of seats and 100 % Chairpersons of Local Bodies from scheduled Tribes .

    • Gram Sabhas also entrusted with management of minor water bodies & forest produce and power of recommendation for licences for mining of minerals.

    • Gram Sabha to be consulted before land acquisition or rehabilitation of displaced persons.


    • Appropriate amendments are being brought for setting up Autonomous District Councils and Village Councils to deepen the process of democracy

    • BRICS COOPERATION rural urban disparities (2010)

    • Important features of BRICS economies include their robust macroeconomic fundamentals, large geographical dimensions and the size of population that represents an enormous potential consumer market complemented by access to regional markets. The number of people at middle income threshold in BRICS is expected to grow several times during the next decade. BRICS markets have great potential for establishing the most stabilizing of forces that is a prosperous middle class which will broaden and deepen, providing a solid base for the growth and development of these economies.

    • A common challenge that the BRICS economies face is the need of institutional development without which sustainable development cannot be ensured. Public-private participation can boost infrastructure growth .In the next decade how the challenges such as high fiscal deficits ,high global uncertainty leading to weak demand for exports, trade protectionism ,high unemployment levels ,poverty and inadequate public health and education facilities and environmental degradation and climate change are met would be crucial in determining the development trajectory of BRICS economies.

    • Towards this endeavor BRIC countries will have to rely heavily on the sub national governments economic policies. The areas for cooperation among the BRIC economies may include infrastructure financing, industrial development, transportation, food security, technical education, energy security, institution building and setting up international development bank for south-south investment .The BRICS have remarkable opportunity to work on strategic agenda to coordinate their economic policies and diplomatic strategies to play significant role in global affairs.